Form 10-Q Quarterly Report
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
Commission File Number 0-22693
SYSCOMM INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2889809
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20 Precision Drive
Shirley, N.Y. 11967
(Address of Principal Executive Offices and Zip Code)
(631) 205-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ________
Number of shares outstanding of the issuer's Common Stock, par value $.01 per
share, as of January 27, 2000: 4,682,894 shares.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
SYSCOMM INTERNATIONAL CORPORATION
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
12/31/99 12/31/98
-------- --------
<S> <C> <C>
Net sales ............................................ $ 11,725,000 $ 27,329,000
Cost of sales ........................................ 10,443,000 24,490,000
------------ ------------
Gross profit .................................... 1,282,000 2,839,000
------------ ------------
Selling & administrative expenses .................... 2,234,000 1,901,000
------------ ------------
(Loss)/income from operations ........................ (952,000) 938,000
------------ ------------
Other income (expense)
Interest expense .................................. (46,000) (102,000)
Other ............................................. - 0 - 16,000
------------ ------------
Total other expense ............................... (46,000) (86,000)
------------ ------------
(Loss)/income before income taxes .................... (998,000) 852,000
(Benefit from)/provision for income taxes ............ (250,000) 341,000
------------ ------------
Net (loss)/income .................................... $ (748,000) $ 511,000
============ ============
Net (loss)/income per common share
Basic ....................................... $(0.16) $0.11
Diluted ..................................... (0.16) 0.11
Weighted average number of common
shares outstanding
Basic ....................................... 4,688,346 4,767,190
Diluted ..................................... 4,688,346 4,767,190
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999
----------------- ------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,473,000 $ 2,263,000
Accounts receivable, net 9,353,000 11,401,000
Inventory 707,000 742,000
Other 692,000 1,156,000
------------- -----------
Total current assets 14,225,000 15,562,000
------------- -----------
Property, plant and equipment, net 3,288,000 3,315,000
Other assets 252,000 424,000
------------- -----------
Total assets $ 17,765,000 $19,301,000
============= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Supplier credit facility $ - 0 - $ - 0 -
Accounts payable and accrued liabilities 5,512,000 6,378,000
Income taxes payable 3,000 10,000
Other current liabilities 244,000 96,000
------------- -----------
Total current liabilities 5,759,000 6,484,000
Long-term liabilities 1,604,000 1,610,000
------------- -----------
Total liabilities 7,363,000 8,094,000
------------- -----------
Stockholders' Equity:
Preferred stock, no par value - -
Common stock, $.01 par value 55,000 55,000
Additional paid-in capital 6,474,000 6,474,000
Retained earnings 4,774,000 5,522,000
Less: Treasury stock (at cost) (901,000) (844,000)
------------- -----------
Total stockholders' equity 10,402,000 11,207,000
------------- -----------
stockholders' equity $ 17,765,000 $ 19,301,000
============= ============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31
------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net (loss)/income $ (748,000) $ 511,000
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities
Depreciation and amortization 75,000 83,000
Changes in assets and liabilities
Accounts receivable 2,048,000 (2,660,000)
Inventory 35,000 1,403,000
Prepaid expenses 24,000 73,000
Recoverable income taxes 340,000 82,000
Other assets 172,000 (12,000)
Accounts payable and accrued liabilities (599,000) 1,564,000
Income taxes payable (7,000) 393,000
----------- ---------
Net Cash Provided by Operating Activities 1,340,000 1,437,000
----------- ---------
Cash Flows from Investing Activities
Purchase of fixed assets (48,000) (13,000)
----------- ---------
Net Cash Used in Investing Activities (48,000) (13,000)
----------- ---------
Cash Flows From Financing Activities
Net payments under supplier credit facility - (178,000)
Payments of long-term debt (25,000) (27,000)
Purchase of treasury stock (57,000) (24,000)
----------- ---------
Net Cash Used in Financing Activities (82,000) (229,000)
----------- ---------
Net Increase in Cash and Cash Equivalents 1,210,000 1,195,000
Cash and Cash Equivalents at Beginning of Period 2,263,000 914,000
----------- ---------
Cash and Cash Equivalents at End of Period $ 3,473,000 $ 2,109,000
=========== ===========
Supplemental Disclosures of Cash Flow Information Cash paid (received) during
the period for:
Income taxes $ (350,000) $ (204,000)
Interest 46,000 102,000
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
SYSCOMM INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements of SysComm International
Corporation (the "Company") are unaudited (except for the balance sheet
information as of September 30, 1999, which is derived from the Company's
audited financial statements) and reflect all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, contained in the Company's Annual Report. The
results of operations for the three months ended December 31, 1999 are not
necessarily indicative of the results for the entire fiscal year ending
September 30, 2000, or any future interim period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations:
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998.
Net loss for the three months ended December 31, 1999 was $748,000 compared to a
net profit of $511,000 for the same period last year. This decrease in net
income was the result primarily of lower sales volume. Diluted loss per share
was $.16 for the three months ended December 31, 1999 compared to earnings of
$.11 for the same period last year.
Revenues:
Revenues for the three months ended December 31, 1999 were $11,725,000 compared
to $27,329,000 for the same period last year, a decrease of $15,604,000 or
approximately 57.1%. The overall decrease in sales is the result of a delay in
customer commitments to new projects until the effects of Y2K are fully
understood and the effect of the Company's decision to terminate its
participation in the IBM Authorized Assembler Program in April 1999.
Gross Profit:
Gross profit as a percentage of sales increased to 10.9% for the three months
ended December 31, 1999 compared to 10.4% for the same period last year. The
improvement in gross profit over the prior year is primarily the result of the
Company's strategic emphasis on serving the information technology marketplace
with mid-range systems and increasing demand for the Company's value-added
services.
Selling and Administrative Expenses:
Selling and administrative expenses increased by $333,000 or approximately 17.5%
to $2,234,000 for the three months ended December 31, 1999 as compared to
$1,901,000 for the same period last year. This increase is primarily the result
of the Company's emphasis to increase the training and skill levels of our work
force to better serve the mid-range marketplace and provide a full compliment of
e-business solutions and consulting services.
Interest Expense:
Interest expense for the three months ended December 31, 1999 decreased $56,000
or approximately 55% to $46,000 from $102,000 for the same period last year.
This decrease is due to a reduction in borrowings against the Company's Credit
Facility as a result of the Company's reduction in inventory to $707,000 from
$1,183,000 for the same period last year and the associated cost to finance this
inventory.
<PAGE>
Income Before Income Taxes:
Loss before income taxes for the three months ended December 31, 1999 was
$998,000 compared to income of $852,000 for the same period last year. This
decrease of $1,850,000 was attributable to the Company's decrease in sales
volume.
Taxes:
The Company's effective tax rate was 25.0% for the three months ended December
31, 1999 compared to 40.0% for the same period last year.
Liquidity and Capital Resources:
The Company's current ratio at December 31, 1999 and 1998 was 2.47 and 1.60,
respectively. Working capital at December 31, 1999 was $8,466,000, a decrease of
$1,371,000 from the same period last year. The decrease in working capital is
the result of the losses sustained by the Company in fiscal 1999 and reductions
in current assets relative to current liabilities.
Cash provided by operating activities was $1,340,000 and $1,437,000,
respectively, for the three months ended December 31, 1999 and 1998. The
decrease was attributable primarily to reductions in the Company's inventory
levels. Cash used in investing activities was $48,000 and $13,000 for the three
months ended December 31, 1999 and 1998, respectively, and was used to purchase
furniture and fixtures and office computer equipment. Cash used in financing
activities during the three months ended December 31, 1999 and 1998 was $82,000
and $229,000, respectively, and represented payments of long-term debt and the
purchase of treasury stock during such periods and net payments of $178,000 made
under the Supplier Credit Facility in 1998.
Year 2000 Compliance
The Company believes its computer equipment and software are fully year 2000
compliant based on its review of transactions since the close of the calendar
year ended December 31, 1999. No discernable year 2000 compliance-related issues
or problems have occurred since December 31, 1999. The Company believes any
possible occurrences that may develop are likely to be minor and inexpensive to
correct.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, including,
without limitation, information appearing under Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors set
forth in the Company's Prospectus filed June 17, 1997, or in the Company's other
Securities and Exchange Commission filings, could affect the Company's actual
results and could cause the Company's actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company in this Quarterly Report on Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On January 27, 2000, the Company held its Annual Meeting of Stockholders (the
"Meeting"). At that Meeting, the following matters were voted by proxy as
follows:
(1) John H. Spielberger and Lowell A. Shulman were elected as Class I directors
of the Company based on the following voting:
Director Votes For Votes Against
-------- --------- -------------
John H. Spielberger 4,327,744 192,810
Lowell A. Shulman 4,327,744 192,810
(2) The amendment to the Company's 1998 Stock Option Plan to increase the total
number of shares of common stock available for issuance from 500,000 shares
to 1,000,000 shares was approved based upon the following voting:
Votes For: 3,037,311
Votes Against: 91,817
(3) The firm of Albrecht, Viggiano, Zureck & Company, P.C. was reappointed as
the Company's auditors for the fiscal year ended September 30, 2000 based
upon the following voting:
Votes For: 4,517,843
Votes Against: 1,916
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*3.1 Amended and Restated Certificate of Incorporation
*3.2 Amended and Restated By-Laws
*4.1 Form of Common Stock Certificate
*4.2 Form of Representative Warrant
**10.1 1998 Incentive Stock Option Plan
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None
- -----------------------------------------------------------------------
* Incorporated by reference from the Registrant's Registration Statement
on Form S-1, Registration No. 333-25593
** Incorporated by reference from the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on
December 27, 1999.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYSCOMM INTERNATIONAL CORPORATION
(Registrant)
By:/s/ John H. Spielberger
-----------------------
John H. Spielberger
President and Chief Executive Officer
Date: February 3, 2000 By:/s/ Thomas F. Belleau
---------------------
Thomas F. Belleau
Vice President, Chief Financial Officer
and Secretary
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31
1999 1998
---- ----
<S> <C> <C>
Weighted average shares outstanding
Common stock ..................................................... 4,688,346 4,767,190
Common stock equivalents -0 - - 0 -
----------- -----------
Weighted average common shares and
equivalents .......................................................... 4,688,346 4,767,190
=========== ===========
Net (loss)/income ......................................................... $ (748,000) $ 510,599
=========== ===========
Net (loss)/income per share:
Basic ............................................................ $ (.16) $ 0.11
Diluted .......................................................... $ (.16) $ 0.11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001037417
<NAME> SYSCOMM INTERNATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,473,000
<SECURITIES> 0
<RECEIVABLES> 9,500,000
<ALLOWANCES> (147,000)
<INVENTORY> 707,000
<CURRENT-ASSETS> 14,225,000
<PP&E> 4,454,000
<DEPRECIATION> 1,166,000
<TOTAL-ASSETS> 17,765,000
<CURRENT-LIABILITIES> 5,759,000
<BONDS> 0
0
0
<COMMON> 55,000
<OTHER-SE> 10,347,000
<TOTAL-LIABILITY-AND-EQUITY> 17,765,000
<SALES> 11,725,000
<TOTAL-REVENUES> 11,725,000
<CGS> 10,443,000
<TOTAL-COSTS> 10,443,000
<OTHER-EXPENSES> 2,214,000
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 46,000
<INCOME-PRETAX> (998,000)
<INCOME-TAX> (250,000)
<INCOME-CONTINUING> (748,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (748,000)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
